Deck 11: Cash Management and Control

Question 1

The asset most commonly subject to misappropriation is:

A) cash.
B) plant and equipment.
C) investments.
D) land and buildings.

Answer 1

A

Question 2

How many of the following are features of good internal control of cash receipts?
$\bullet$ Employees who handle cash from customers do not prepare the daily banking.
$\bullet$ Use of a safe for temporary cash storage
$\bullet$ Pre-numbering of sales dockets and receipts
$\bullet$ Use of cash registers and EFTPOS to record cash sales

A) One
B) Two
C) Three
D) Four

Answer 2

Four

Question 3

If the cash in the cash register is $1450 and the cash register tape at the end of the shift shows a total of $1350, this would indicate:

A) the cashier is dishonest.
B) cash over of $100.
C) a cash shortage of $100.
D) the cash register and the tape agree.

Answer 3

B

Question 4

Which of the following is not necessarily one of the benefits of effective internal control?

A) Safeguarding of assets
B) A sound liquidity position
C) More accurate accounting data
D) A more efficient accounting system

Question 5

Which of the following is not a characteristic of good internal control?

A) Insurance of assets
B) Joint responsibility for assets
C) Regular bank reconciliations
D) Rotation of employees over a range of tasks

Question 6

Total cash sales for the day amounted to $1890 but the amount of total cash in the register at the end of the day was only $1850. Ignoring GST, the journal entry to record the day's cash sales would be:

A) DR Bank $1890; CR Sales $1890
B) DR Bank $1850, DR Cash short and over $40; CR Sales $1890
C) DR Cash short and over $40; CR Sales $40
D) DR Bank $1890, CR Cash short and over $40; CR Sales $1850

Question 7

The procedures adopted by a business to safeguard its assets, promote the reliability of accounting data and encourage compliance with management policies are:

A) physical controls.
B) cash budgets.
C) internal controls.
D) bank reconciliations.

Question 8

Which of the following is a limitation of internal control?
I The accounting standards
II The cost of the controls
III The possibility of collusion between two or more employees

A) I and III
B) I and II
C) II and III
D) I, II and III

Question 9

Which of the following is not included in the definition of cash?

A) Cheque
B) Petty cash
C) EFTPOS transactions
D) Accounts receivable

Question 10

Which of the following is not a feature of good internal control?

A) Regular stocktakes
B) Labelling of fixed assets
C) Regular bank reconciliations
D) Making cash payments from unbanked cash receipts

Question 11

As a business grows and the owner must rely more on others to help in managing operations, internal control becomes:

A) unnecessary.
B) less important.
C) more important.
D) business growth has no effect on the importance of internal control.

Question 12

Internal controls that apply to computerised accounting systems include which of the following?
I Passwords
II Back ups
III Computer viruses
IV Programming controls

A) I, II, and III
B) I, II and IV
C) I, III and IV
D) II, III and IV

Question 13

Which of the following is not a benefit of a sound system of internal control?

A) Greater reliability of the accounting information
B) A highly marketable product
C) Less errors
D) Reduced likelihood of fraud

Question 14

Which of the following is not a good internal control practice?

A) Handwriting cheques
B) The use of passwords for computer access
C) The pre-numbering of source documents
D) Use of a safe to store unused blank cheques

Question 15

Two key elements of effective control for cash payments are:

A) business bank account and petty cash fund
B) business bank account and cheque book
C) cheque book and petty cash fund
D) personal bank account and business bank account

Question 16

Which of the following statements concerning internal control is true?

A) Double entry accounting is an internal control.
B) Fraud will be eliminated by good internal control practices.
C) Physical counts of stock on hand are not part of internal control procedures.
D) It is OK to pay accounts out of unbanked receipts as long as a note is made of what has occurred.

Question 17

Which of the following is not an important principle for the control of cash payments?

A) Only senior staff should have the authority to approve invoices for payment.
B) Cheques should be written out promptly even if the invoice is not yet provided.
C) Random checks on the balance of the petty cash fund.
D) Employees who receive delivery of the goods should not be involved in recording the invoices into the accounting system.

Question 18

Which of the following is not a measure of good internal control?

A) Daily banking
B) Requiring all employees to take annual leave
C) Reconciling a control account with its subsidiary ledger
D) Combining authority to purchase goods and sign cheques

Question 19

The cash short and over ledger account, which records the difference between the total of the cash register tape and the actual cash counted from the register:

A) is included in the bank reconciliation.
B) appears on the balance sheet as liability.
C) is closed to the profit or loss summary account.
D) is deducted from the bank account balance in the ledger.

Question 20

Which of the following does not represent proper internal control of cash receipts?

A) Daily banking of receipts.
B) Two people opening the mail.
C) Paying accounts directly out of the cash register.
D) Balancing the cash register after each employees' shift.

Question 21

Ignoring GST, what is the correct accounting entry that would need to be made for a customer's cheque for $2800 that has been dishonoured?

A) DR Bank $2800; CR Accounts receivable $2800
B) DR Accounts receivable $2800; CR Bank $2800
C) DR Accounts receivable $2800; CR Accounts payable $2800
D) DR Accounts receivable $2800; CR Discount allowed $2800

Question 22

The correct order in which the steps in the bank reconciliation process occur is:
I) Prepare the bank reconciliation
II) Tick off the items in the prior reconciliation with the bank statement
III) Tick off the cash receipts and cash payments journals with the bank statement
IV) Update the cash receipts and cash payments journals with unticked items from the bank statement

A) III, II, IV, I
B) III, IV, II, I
C) IV, II, III, I
D) II, III, IV, I

Question 23

Which of the following is not a principle of internal control?

A) Establishing clear lines of responsibility
B) Division of responsibility for related transactions
C) Separation of record keeping and custody of assets
D) Placing excess cash on fixed deposit to earn interest

Question 24

The essential element of the internal control of cash is:

A) a strong safe.
B) a petty cash system.
C) the bank reconciliation.
D) the double entry accounting system.

Question 25

Which of the following statements relating to a bank statement is true?

A) It constitutes a source document for the entity for direct debits and credits such as bank charges.
B) The bank's customer is viewed as a debtor.
C) A direct deposit is listed in the debit column.
D) A positive balance in the bank account will be shown as a debit balance.

Question 26

When preparing a bank reconciliation, any bank fees and interest charged by the bank are:

A) added to the general ledger bank balance.
B) deducted from the general ledger bank balance.
C) added to the bank statement balance in the reconciliation.
D) deducted from the bank statement balance in the reconciliation.

Question 27

When preparing a bank reconciliation what would cause the bank statement balance to be less than the adjusted cash balance in the general ledger? (Assume the bank is not in overdraft.)

A) Bank fees
B) Dishonoured cheques
C) Outstanding cheques
D) Outstanding deposits

Question 28

When reconciling the ledger with the bank statement (assuming a positive bank balance) a returned (dishonoured) cheque should be:

A) added to the general ledger bank balance.
B) subtracted from the general ledger bank balance.
C) subtracted from the bank statement balance.
D) added to the bank statement balance in the reconciliation.

Question 29

Bowen Ltd received its monthly bank statement showing a balance of $35 894 Cr at 31 March. On this date cash received from debtors and not yet deposited at the bank totalled $8971 and outstanding cheques were $3465. The amount to appear as cash at bank on the 31 March balance sheet is:

A) $41 400
B) $44 865
C) $48 330
D) $35 894

Question 30

Which of the following statements relating to dishonoured cheques is incorrect?

A) They appear as credits on the bank statement.
B) They are cheques from debtors deposited into the firm's bank account but not paid by the drawer's bank due to lack of funds or for other reasons.
C) They are not listed in the bank reconciliation.
D) They are adjusted for by entering a negative amount into the cash receipts journal.

Question 31

When preparing the bank reconciliation James found that the bank had incorrectly debited the business' bank account with $200. The proper procedure is to:

A) deduct $200 from the bank balance in the general ledger and notify the bank.
B) do nothing as the bank will adjust the error when they balance.
C) deduct $200 from the bank balance in the general ledger.
D) add $200 to the bank statement balance in the bank reconciliation and notify the bank.

Question 32

Storybrook Ltd had an unadjusted ledger bank balance at 31 July of $17 000 Dr. The bank statement for the month shows a balance of $28 082 Cr. The bank statement also shows bank fees and charges of $138 and direct deposits from customers paid into the bank of $4500. Deposits not yet credited are $3 600 and unpresented cheques are $10 320. What is the cash at bank ledger balance at 31 July?

A) $21 362
B) $21 500
C) $21 638
D) $28 082

Question 33

The deposit column of Meredith Company's bank statement shows a direct credit of $500. Assuming the account is not in overdraft, when reconciling the bank account, this amount will be:

A) deducted from the bank statement balance in the reconciliation.
B) added to the bank statement balance in the reconciliation.
C) deducted from the general ledger bank balance.
D) added to the general ledger bank balance.

Question 34

When reconciling the bank ledger account and the bank statement, if both are in overdraft, unpresented cheques will be:

A) deducted from the general ledger bank balance.
B) added to the general ledger bank balance.
C) added to the bank statement balance in the reconciliation.
D) deducted from the bank statement balance in the reconciliation.

Question 35

Which of the following would appear as a credit on the bank statement of Central Motors?

A) A dishonoured cheque
B) A cheque paid by Central Motors to a supplier.
C) A cheque received by Central Motors from a customer.
D) Employees' salaries paid by electronic funds transfer.

Question 36

While preparing the bank reconciliation Terry discovered that the bank had incorrectly paid cheque number 100389 for $900 more than the amount written on the cheque by the company. The bank account has a positive balance. The proper procedure to correct this bank error is to:

A) add the error to the bank balance in the general ledger.
B) deduct the error from the bank statement balance in the reconciliation.
C) add the error to the bank statement balance in the reconciliation and notify the bank.
D) deduct the error from the bank balance in the general ledger and notify the bank.

Question 37

Assuming the account is not in overdraft, when reconciling the ledger with the bank statement a deposit in transit should be:

A) added to the general ledger bank balance.
B) subtracted from the general ledger bank balance.
C) added to the bank statement balance in the reconciliation.
D) subtracted from the bank statement balance in the reconciliation.

Question 38

Flynn and Associates had an unadjusted bank account ledger balance at 30 November of $3552 Dr. The bank statement at the same date showed a balance of $3460 Cr. Bank service charges for the month were $22 and outstanding cheques totalled $630. The bank statement revealed that the bank had collected dividends for the firm of $450 and a deposit of $1150 is not yet recorded on the statement. What is the corrected bank account ledger balance at 30 November?

A) $3 530
B) $3 460
C) $3 980
D) $4 130

Question 39

The main purpose of a bank reconciliation is:

A) to prove the accuracy of the bank
B) to prove the accuracy of the general ledger.
C) to prove the accuracy of the bookkeeper.
D) to prove the accuracy of the ledger bank account.

Question 40

When reconciling a bank account, the bank's transaction fees are:

A) added to the general ledger bank balance.
B) deducted from the general ledger bank balance.
C) added to the bank statement balance in the reconciliation.
D) deduced from the bank statement balance in the reconciliation.

Question 41

Which of the following is not an advantage of cash budgeting?

A) Idle funds are kept to a minimum.
B) Cash shortages can be predicted.
C) Cash is safeguarded.
D) Future planning is facilitated.

Question 42

The preparation of a cash budget ensures that:

A) an entity can meet its commitments as they fall due.
B) wasteful cash outlays are minimised.
C) cash funds are not left lying idle.
D) all of the above

Question 43

A cash budget is a projection of:

A) the expected bank statement balance.
B) the expected future cash receipts and cash payments.
C) the cash receipts and cash payments received during the financial period.
D) the present value of the future cash receipts and cash payments.

Question 44

The petty cash account is what type of account?

A) Expense
B) Equity
C) Current Asset
D) Current Liability

Question 45

Which of the following is a principle of good cash management?

A) Investing surplus cash.
B) Keeping inventory at a level where no item required by a customer is ever out of stock.
C) Paying creditors before the due date.
D) Offering large cash discounts to debtors to pay within 30 days.

Question 46

Which of the following is a broad principle of cash management that helps ensure that a business remains solvent?

A) Collect cash owing from accounts receivable as quickly as possible.
B) Invest any cash that is surplus to requirements to earn a return for the business.
C) Pay accounts payable just before the due date rather than when the statement is first received.
D) All of the above

Question 47

The petty cash fund should be reimbursed at the time the financial statements are prepared so that:

A) expenses are not understated and equity overstated.
B) petty cash asset is not overstated and expenses understated.
C) petty cash expenses are not overstated and bank understated.
D) expenses are not overstated and the petty cash asset understated.

Question 48

Sugar Industries makes all sales on credit with 60% of the payment received in the month of sale, 20% in the month following the sale, 15% in the 2^nd month following sale, and the remaining 5% remains uncollected.
Budgeted sales are:
July $100 000
August $140 000
September $120 000
October $150 000
The budgeted receipts from debtors for September are:

A) $120 000
B) $135 000
C) $115 000
D) $100 000

Question 49

The correct journal entry at the end of the month to reimburse the petty cash for the amount spent is:

A) DR Petty cash expenses; CR Bank
B) DR Petty cash asset; CR Bank
C) DR Bank; CR Petty cash asset
D) DR Petty cash asset; CR Petty cash expenses

Question 50

refers to the ability of a firm to pay its debts as they fall due.

A) solvency.
B) the acid test.
C) cash management.
D) being in surplus.

Question 51

Which ratio measures solvency by relating cash flows from operating activities to total liabilities?

A) gearing ratio.
B) operations index.
C) cash flow adequacy ratio.
D) turnover of cash flow ratio.

Question 52

The bank statement of Mellon Company shows an overdraft of $10 000 at 28 February. In reconciling the account at that date indicate how the company will treat cheque no. 4500 for $80 that was drawn on 25 February but had not yet been presented for payment.

A) Record in the cash receipts journal.
B) Record in the cash payments journal.
C) Add to the bank statement balance in the bank reconciliation.
D) Subtract from the bank statement balance in the bank reconciliation.

Question 53

Which of the following is not an essential feature of the petty cash imprest system?

A) Several people being authorised to reimburse expenses.
B) Deciding on a fixed sum that becomes the imprest balance or 'float'.
C) Cash in the fund together with vouchers always equalling the imprest amount.
D) Reimbursement to the fund for the exact amount spent in the period.

Question 54

Harry & Sons makes all of its purchases on credit; 50% are paid in the month of purchase; 30% during the month following the purchase and 20% in the second month following the purchase. Given the following data, determine the cash paid to creditors during June.
April May June
Credit Purchases $50 000 $80 000 $60 000

A) $30 000
B) $64 000
C) $54 000
D) $60 000

Question 55

The ratio that measures solvency by relating cash flows from operating activities to current liabilities is the:

A) working capital ratio.
B) times interest ratio.
C) cash flow adequacy ratio.
D) short-term cash flow adequacy ratio.

Question 56

The correct journal entry to establish the petty cash fund is:

A) DR Bank; CR Petty cash asset
B) DR Petty cash asset; CR Bank
C) DR Petty cash expenses; CR Bank
D) DR Petty cash asset; CR Petty cash expenses

Question 57

William's bank account is not in overdraft. When preparing the bank reconciliation he found that the bank had incorrectly credited his account with $50. The proper procedure is to:

A) add $50 to the bank balance in the general ledger and notify the bank.
B) add $50 to the bank balance in the general ledger.
C) do nothing as the bank will adjust the error when it balances.
D) deduct $50 from the bank statement balance in the bank reconciliation and notify the bank.

Question 58

A cash budget measures the:

A) working capital.
B) estimated financial position.
C) expected profitability.
D) estimated future cash position.

Question 59

Which of the following principles of cash management is not true?

A) There are disadvantages for a business in holding very low levels of inventory.
B) The longer the operating cycle the longer it takes to pay creditors.
C) Payments to creditors should not be delayed if it means discounts on offer are lost.
D) Generally, cash surpluses should be used to acquire necessary non-current assets rather than being kept in a fixed deposit.

Question 60

Which of the following statements relating to a cash budget is true?

A) It is a statement of expected income and expenses.
B) Non-cash items such as depreciation are excluded.
C) It is usually prepared on a weekly basis.
D) The longer the time period involved the easier it is to predict future cash flows.